Saturday, August 04, 2007

The Most Innovative Pricing Strategy

What if you let consumers take whatever they want and pay whatever they want. That's the pricing model at a coffee shop called Terra Bite in Kirkland, Washington. There is no obligation to pay at all, as baristas are instructed not to look at what people pay into the tip jar and the website states "we cheerfully serve those who can not pay in a non-stigmatizing customer setting".

According to The Seattle Times the shop averages $3 dollars per transaction. What factors are motivating people to pay when they don't have to? There are several possible reasons. Perhaps most people are generally honest and want to do the right thing. Social monitoring could motivate others to show the community they are honest. Others may desire to help the less fortunate who are unable to pay. Some may just think it's a cool idea and want to be part of the social experiment.

I think the social element has a strong influence on the success of such a model. It would be interesting to see what would happen to the average transaction price if they left the cash register unattended. The question is whether people are more generous or selfish. What if this pricing model was extended to restaurants, convenience stores, or service businesses?